UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17342 / January 25, 2002
Securities and Exchange Commission v. Merrill Scott & Associates, Ltd.; Merrill Scott & Associates, Inc.; Phoenix Overseas Advisers, Ltd.; Gibraltar Permanente Assurance, Ltd.; Patrick M. Brody; David E. Ross II; and Michael Licopantis. Civil Action No. 2:02-CV-0039C (USDC D.Ut.).
The Commission has obtained, by stipulation, the appointment of a receiver for Merrill Scott & Associates, Ltd. (MSA); Merrill Scott & Associates, Inc. (MSAI); Phoenix Overseas Advisers, Ltd. (Phoenix); and Gibraltar Permanente Assurance, Ltd. (Gibraltar); the Court-appointed receiver is David K. Broadbent, of the law firm of Holland and Hart, LLP. Mr. Broadbent, a member of the Utah bar, was appointed by the Court on January 24, 2002.
The Court also entered a Preliminary Injunction as to David E. Ross II by consent and extended the Temporary Restraining Order, Asset Freeze and Prohibition Against Destruction of Documents, by stipulation, as to Merrill Scott & Associates, Ltd.; Merrill Scott & Associates, Inc.; Phoenix Overseas Advisers, Ltd.; Gibraltar Permanente Assurance, Ltd.; and Patrick M. Brody on January 24, 2002. This continues the freeze of the assets of the four entities and Brody that was previously entered on January 15, 2002.
The complaint alleges MSA, a Bahamian entity, and many of its affiliates, including Phoenix, Gibraltar, and their domestic affiliate, MSAI (collectively "Merrill Scott"), were engaged in an ongoing scheme in which they obtained investments of cash and marketable securities from U.S. citizens primarily seeking tax advantages through offshore investments. It is alleged that since at least 1999 Merrill Scott has been operating at a loss due to: (1) misappropriations of an estimated $9.5 million by Brody, the control person of the Merrill Scott organization, to finance his personal expenses; (2) Merrill Scott's operating expenses; and (3) Merrill Scott's attempts to realize huge returns on its investments by investing heavily in start-up companies. It is further alleged that in order to keep the Merrill Scott organization afloat and keep clients satisfied, Brody operated the organization as a giant Ponzi scheme, using newly invested money to pay returns to earlier investors.
The complaint charged the defendants with violating the antifraud provisions of the federal securities laws, specifically Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint also alleged that Merrill Scott & Associates, Ltd.; Merrill Scott & Associates, Inc.; Phoenix Overseas Advisers, Ltd.; Gibraltar Permanente Assurance, Ltd.; and Patrick M. Brody were operating an unregistered broker-dealer. The Commission filed its action on January 15, 2002.